Renault surprises with its success in race for AvtoVaz stake

Putin and Sarkozy friendship could have helped carmaker beat rival bidders including GM and Fiat

Sergey Chemezov (right), head of Russian Technologies, chairman of the Board of AvtoVaz and Carlos Ghosn, president and CEO of Renault signed the agreement in Togliatti today

MOSCOW -- AvtoVaz has picked Renault as its strategic partner and will sell a 25 percent stake to the French carmaker. The choice came as a big surprise as industry watchers believed Italy's Fiat and Canadian auto supplier Magna International were the frontrunners.

Compared with other bidders, Renault was thought to have the least chance to tie up with Russia's largest but ailing carmaker. However, analysts believe that Russian President Vladimir Putin and his French counterpart Nicolas Sarkozy personally decided that the two carmakers should form a strategic alliance.

Russian arms trader Rosoboronexport, the parent company of AvtoVaz, said late Friday it had picked Renault as its strategic partner.

Today, the two companies were signing an agreement in Togliatti, where AvtoVaz is based.

The move has caught many observers off guard.

Renault is the company that has negotiated the longest with AvtoVaz. But one source said earlier this week that Renault's proposal was originally considered "unacceptable" because it wanted to assemble cars at AvtoVaz under its own brand. Renault also is thought to have sought a controlling stake in AvtoVaz.

Renaults conditions later improved, said the source, who saw both Renaults and Fiats proposals.

Some observers believed Magna would be the winner. Magna is 20 percent owned by Russian billionaire Oleg Deripaska, who also controls Russia's No. 2 automaker GAZ.

Others thought that General Motors, which announced it was bidding for a "significant" stake in AvtoVaz earlier this week, would be picked.

GM and AvtoVaz have produced vehicles at their joint venture in Togliatti since 2001, but their relations have been soured by a series of disputes.

Nevertheless, GM enjoys huge brand recognition in Russia and it can offer AvtoVaz the Western technologies it needs.

Experts believed that of all the four bidders, Renault had the smallest chance. And in a possible sign that the French carmaker itself didn't place much hope on its possible partnership with AvtoVaz, it announced earlier this year that it would double capacity at its Moscow plant.

The election of Nicolas Sarkozy as French president apparently gave new impetus to the Russian-French talks. Sarkozy recently visited Moscow where he called Putin "dear Vladimir." He was virtually the only European leader who congratulated Putin on the result of Russias December 2 parliamentary elections. Other European leaders expressed concern that the election was neither free nor fair. The success of the pro-Putin United Russia party in the election is expected to help Putin to continue to lead Russia when he steps down as president in May.

This is also not the first time that a French company has unexpectedly won a game of high stakes in Russia. Earlier this year, Putin's administration announced that gas giant Gazpom had picked France's Total as its partner to develop the huge Shtokman field.